Chinese Stocks to Trail World for Fifth Year: Chart of the Day

Jan. 14 (Bloomberg) -- Chinese stocks may trail global
peers for a fifth straight year as higher borrowing costs hurt
earnings and a flood of initial public offerings divert funds
from existing shares, according to Bank Julius Baer & Co.

The CHART OF THE DAY shows the Shanghai Composite Index’s
lowest price-earnings ratio on record versus the MSCI All-Country World Index has failed to lure investors. The Chinese
benchmark gauge has underperformed the global measure every year
since the start of 2010, the lower panel shows, while the number
of new accounts opened to trade shares in the most-populous
nation has dropped 94 percent from the 2007 peak.

The Shanghai gauge lost 5 percent this year through
yesterday in the worst start since 2002, as Bank of China Ltd.
touched a record low and China Life Insurance Co. fell for seven
of the past eight days. A cash crunch in the interbank market
last month spurred Chinese companies to offer bonds at the
highest yields since the 1997 Asian financial crisis, while the
securities regulator has approved about 50 IPOs to end a more-than yearlong freeze in first-time sales.

“There are concerns about liquidity, with IPOs
restarting,” said Kelvin Wong, an analyst at Julius Baer in
Hong Kong. “There’s a lack of interest in big-cap names like
banks and insurers. Stocks will still have quite a positive
return this year but may underperform global markets.”

The Shanghai Composite traded 39 percent below its level at
the end of 2009 on Jan. 10 and was valued at 7.9 times estimated
earnings, a record low and about half the 14.3 multiple of the
MSCI All-Country World, which jumped 36 percent in the period.
Investors liquidated about 52,000 stock accounts in the week to
Jan. 3, leaving a record 119 million empty or dormant, according
to regulatory data compiled by Bloomberg.

Investors may return to the market if the government
provides greater clarity on sweeping reforms announced in
November and regulators improve corporate governance, Wong said.
The economy probably expanded 7.6 percent in 2013, according to
a State Council report, the weakest pace in 14 years.